Sunday, November 23, 2014

My writing partner, Bryan, posted this to his blog (Profit at any Price) a couple of days ago and I thought I should repost here too.

Noblesse Oblige by Allen Laudenslager and Bryan Neva (March 2013)

This Blog was originally published on Thought Leaders on March 13, 2013. The longer I work, the more I see good people who are promoted into positions of authority in organizations slowly give into the temptation of pride and privilege. They forget their obligations and squander the opportunity given them to serve others in their organization and improve the corporate culture. “Noblesse Oblige” is an old French phrase that literally translates as “nobility obligates.” It means that those who have power and authority, or who are privileged, rich or famous have a moral responsibility to display honorable, charitable, and exemplary behavior towards those less fortunate or to those dependent on them.In other words, whoever claims to be noble must conduct themselves nobly. John D. Rockefeller, Jr. summed it up nicely when he said: every right implies a responsibility; every opportunity, anobligation; every possession, a duty.The idea of “Noblesse Oblige” was created out of enlightened self-interest. The nobility had serfs who were dependent on them for land to farm, a place to live and protection from bandits. In medieval times all the land belonged to the nobility; the enlightened noble recognized that while he owned the land, without someone to plant and harvest the noble had no income. Seeing to the wellbeing of his serfs was his “noble obligation.”The good old days of companies treating their employees as their most valuable assets have been set aside in favor of expecting them to work harder for the same pay and fewer benefits. In place of rewards they’re told they should be glad they still have a job. Corporate management has developed an entitlement mentality (like the old French nobility) by remembering their privileges (power, prestige, perks, and pay) but forgetting their obligations to their employees. So what does this mean for you?Loyalty always starts with the person who has the power and authority and is earned not given. Power is the ability to grant or withhold rewards, and authority is the power to influence the behavior of a person with less power. And there’s no authority without a counterbalancing responsibility.Some use their power and authority altruistically; unfortunately, many others use it capriciously or unfairly. Lord John Acton (1834—1902, British historian and moralist) famously wrote: Power tends to corrupt, and absolute power corrupts absolutely. So what tends to happen is that those in power begin to believe their own press releases and act as if their power is a natural right and their authority is to be unquestioned. After all, they must be right or they wouldn’t have been granted the authority in the first place, right?The key to avoiding falling into the entitlement trap is simply by learning a little good ol’ fashioned humility. Start by walking over to your company’s customer service center and imagine there’s no one there to answer the phones, to take orders or to solve problems. You’re not going to sell anything.Next, walk down to your company’s shipping and receiving department and watch the employees loading and unloading trucks. Now close your eyes and pretend that those workers aren’t there… your products are just sitting on the docks and the trucks are not getting loaded. How much money will you make if you don’t ship your products to customers?It’s easy to think of all these workers as not being important because almost anyone could do these types of jobs. Answering the phones or loading and unloading trucks are cheap but also very critical. In other words, the labor costs are inexpensive but the work is valuable.Now extrapolate these examples out to your entire organization. How much value are all your other employees contributing to your long-term success? Who really produces and who is overhead? Enlightened self-interest should tell you that without workers you’d have no income.So while you may not be willing to pay much for a person working in customer service or shipping and receiving, enlightened self-interest should tell you that a relatively low paid employee might be critical to your long-term success and you should begin to treat that worker with the respect their contribution, not their cost, deserves.

An emotionally satisfying poem, but what the heck does it mean to business? It means that your business, in too many ways to list, depends on the businesses around it and on your suppliers and customers.

A climate of success helps you to succeed while a climate of collapse makes it much more likely that you will fail. We have uncountable examples of towns that relied on a single economy. The farm and market towns of the midwest that were supported by the small family farms died with the advent of industrial farming.

Those large farms were operated by so few workers that all those support business that made the town exist weren’t needed.

We know of cases where small stores closed thru loss of business diverted to big box stores. Part of the problem is that the profits from a local store tend to stay in the community while the profits from big box stores tend to be aggregated in the financial centers of big cities.

This phenomenon constitutes a cash drain that eventually strips that small town of its cash and unless there is a constant influx of fresh cash then the community goes broke and the residents leave for richer ground.

If the cash is in the financial centers then that is where the cash gets spent and that’s where the jobs are. As the people collect where the money is those small towns slowly die out. Just like the gold rush ghost towns when the gold ran out.

We are witnessing the same thing on a national scale. As more and more products are made in far flung places the cash is being transferred from the developed nations to the developing.

The key here is that people who don’t have jobs can’t buy your product no matter how cheaply you can make it.

I can buy a life jacket for around 12 bucks but what is its value? If I don’t go out on the water I wouldn’t buy it at any price. When the boat sinks I might pay $100 for that same life jacket. If I don’t have even a single dollar, then I CAN’T buy that life jacket even if the boat is sinking under me.

The point to all this is that if you minimize your workers profits to maximize your own, then they have less to spend with you. While it’s true your workers can’t buy enough of your product to keep you in business that money does circulate.

If your workers can’t buy from the local burger stand, the people who work in the burger joint can’t buy your washing machine or dish soap.

Every job you and your industry transfer to some far-away factory is one less local customer for your product. And when that transfer is to chase that last fraction of a percent of profit but is making your potential customer base smaller, are you really coming out ahead?

Once again, you are absolutely correct when you say that your business can’t make that big a difference and by yourself you are right. Add your choices to all the others making the same kind of decision and we have the current lingering recession.

Living proof that recessions are self-generated self-fulfilling phenomenon. If business cut employees and/or salary/benefit packages than employees spend less and there are fewer sales.

Tuesday, October 7, 2014

Bitcoin is a full on fiat currency supported only by the
user’s faith that someone else will accept it at what they paid for it. Looked
at one way it is a fraud since there it has no intrinsic value supporting it.

In another sense it has exactly the same value as an
ounce of gold. The trust that someone else will accept the value and exchange
it for something we both agree is an equal value.

I remember once when I was about 13 (1958) and traveling
with my parents, we stopped for gas in a small town in western Pennsylvania
where my father tried to use an American Express Traveler’s Check. That was a
matter of trust - this small town gas station had never seen one and didn’t
know if he could trust it or not. He did know and expect that he could trust a
5 or 10 or 20 dollar bill!

Back to that ounce of gold you trust so much. In the
depths of antiquity certain types of sea shells drilled and strung like beads
were a medium of exchange. They were rare and hard to get, at least far from
the coast, and people accepted them in return for goods and services. As travel
became easier and the shells lost their rarity they were supplanted by other
mediums. Iron, copper, silver and gold coins for a long time were the standard
and later were replaced by paper that could be exchanged for set amounts of the
actual metal.

Gold, silver or any other metal has only the value we
give it. Each of these has a use in manufacturing. You can build things from iron
and steel or even copper. Gold and silver have industrial uses beyond their use
in jewelry. But if you are in the wilderness, and need a meal, that ounce of
gold will not feed you unless someone else has food AND is willing to exchange
that food for the gold.

So why might they give up an immediately useful thing
like a meal for an immediately useless thing like an ounce of gold? Because
they trust that someone else, somewhere else will want to trade what they have
for that ounce of gold. So in a very real sense, that gold relies on exactly
the same “value” that a Bitcoin does - trust!

For good or ill, Bitcoin is now a permanent part of the
financial landscape and will be a permanent part in some
form or another from now on. So before you start wailing and moaning about
Bitcoin being worthless and the ultimate fiat currency; remember that it rests
on the same foundation as gold, US dollars or a can of soup. We expect that
someone else will accept gold or soup as unit of storage of value. And that
they will be willing trade whatever they have for that gold, US dollar or can
of soup.

If you think this is a new concept think about this, approximately 800 years ago St. Thomas Aquinas said “Men
could not live with one another if there were not mutual confidence that they
were being truthful to one another”.

Thursday, August 28, 2014

In August of 2009, the CNN web page ran an
article titled “How to get a job in 100 worlds or less. In almost every case
the professional career consultants gave advice that presumed the candidate had
skills that very few real life candidates have.

These 7 people gave great advice. The problem
is that they gave half the advice – strong on what and short on how! While the
article was written to be short and fast, the very structure of the article
causes more problems than it solves. Since it is written in the expectation
that the reader can actually use the suggestions, when the unprepared reader
bumps up against the reality of their own limited abilities they are left more
discouraged than before they read the article.

Each of you reading this article, by the very
fact of taking the time to read this article, are outliers. You are not
“average”. If your response to what I am saying is “learn those skills” it’s
because by nature or education you’ve gone that one step farther than most
people either know how to go or have been taught to go.

My point is that you cannot apply your
standards for yourself to those poor souls who are floundering in their job
search.

The key
to economic recovery is people working at well paying jobs. Working people with
good salaries have money to buy stuff and companies need them as customers to
survive. The out-of-work people need help do each of the following:

Not just discovering
companies that might use their
skills, but companies that need those exact skills AND have a current
opening. This is key because having exactly the right skills, presented in
exactly the right way on Monday is worthless if the job closed on the
preceding Friday or doesn’t open until the following Monday.

Help analyzing job
requirements and matching them to their own skills. A lot of people have
to change career fields in today’s market and have great skills that will
crossover to other industries or jobs. Since their expertise is in the
work they do and not in marketing their own skills, most won’t know how to
discover or explain how their skills crossover into the new fields and
industries.

Help tailoring their resume
to showcase how their skills match the job requirements. Most people try
to write a resume only once every few years and thus are not very good at
succinctly explaining their skills and abilities. Most people don’t have
enough practice to tailor their resume to showcase their crossover skills.

Access to a wider set of contacts
and information about which companies have current openings and whom to
contact, by name. The helper must become the referrer. The vast majority
of jobs don’t naturally build large networks In fact; most workers don’t
have networks and don’t know how to build them.

Lastly the HR people must
learn that many of the best candidates are not and need not be the best
professional job seekers. Unless job search skills are job performance
skills, the candidates that have the best job search skills are not really
professional engineers or clerks or whatever; they are professional job
seekers and once they start work, they will immediately start looking for
their next job.

Before
you say: “Hire one of the companies in this article to teach you and to supply
the contacts you need.” Remember you are talking to someone who has just lost
his or her job, thus has no income and really can’t afford to pay for
professional help. These kinds of support are what the state unemployment
offices should be supplying and rarely if ever actually deliver.

The solution will come from one of two
sources. Either from someone within the system who recognizes the deficiencies
and has the authority to make the necessary changes, plus access to the funds
to pay for the extra resources. The other possible source is some “genius”
outsider who can disrupt the existing process in some unexpected way.

Since genius is where (and when) you find it,
the most likely solution will be a slow process of small changes within the
system as lone individuals discover ways to place one candidate at a time and
try to formalize the things that work.

Don't just toss this aside as just another rant. Remember that defining the problem is always the first step in solving it.w

Tuesday, August 19, 2014

Startups

Startups are fundamentally different from anything else you can do in business.

In many ways a starting a company is just like raising a child. Everything is for the first time - new and untried. No matter how much experience the people have designing the product or servicing the customer; with a startup it’s still the first time that particular task has ever been done with those people in exactly that way.

Just as an established company has to build a relationship and reputation with a new customer, a new company has to build a relationship and reputation with every customer. An established company has staff interrelationships that are just being built in a startup and will inevitably impact how and how well those people work together.

Every new product or service will have problems to solve. Just think about the last time you bought a new TV or a new car. You had a learning curve just to figure out how to set the clock or the date since every TV or car has a slightly different procedure.

An established company has processes and procedures for most of its day-to-day operations. A policy for handling customer complaints and refunds, and a set dollar amount that the service person is authorized to spend without asking permission and so on.

The first key lesson for a startup to learn comes from the French philosopher Rene Descartes – Each problem that I solved became a rule, which served afterwards to solve other problems.

The takeaway from this is for you to keep close track of problems and successes to develop processes, procedures and guidelines to deal with future issues. This deceptively simple practice is the key to scaling your business and allowing you to add staff without losing the very things that set you apart from the competition.

Every startup begins with an idea and that must be turned into a plan to actually create a product or to deliver a service. Depending on the business that plan might be very simple or complex but just like planning a trip to the grocery store without a list you end up forgetting the lunchmeat!

While a better plan generally leads to better results, its far too easy for you to get caught up in trying to write the perfect plan and to account for every possibility, leading to the well known “analysis paralysis”.

The second key lesson for a start up is - A good plan implemented today is better than a perfect plan implemented tomorrow.

George Patton

Your takeaway this time is that while you must do enough planning to know were to start, what you need to start with and where you are going, you should start actually doing something as soon as practical. Just like that mythical trip to the grocery store I mentioned earlier, you can always add or subtract items from the during your shopping trip, but start filling your cart!

Reading the startup advice in most business magazines you will see the reoccurring theme to not let finance hold you back. While this is good advice in the main you still need some cash to get started.

I can start a ditch digging service with a car or truck (or a bus ticket) to get to the job and a $15 shovel. Without that transportation and the shovel I can’t start a ditch digging business! I specifically chose a ditch digging business since the cost of tools is just about as low as you can get, but as you can see there is a minimum you need to get started.

How many times have you seen a need for a service or product that you’ve thought “I could make a lot of money building that or doing that for that customer”? In looking at exactly how you could make the product or deliver the service you find that you need some cash up front to buy the raw materials and tools to actually build the product or deliver the service (and by the way feed yourself till you get paid) and decide that you just don’t have the cash to make it work?

Most of us have shelved the idea and moved on looking for something we can do with the resources we already have or use what we do have to get a sample together to get more funding.

Its OK to look for opportunities within your budget or skill set, it is also OK to look for ways to expand your budget or acquire new skills but to you really only have those two choices. My business experience has taught me that more ideas fail for lack of funding than funding is wasted on bad ideas.

The key to places like Silicon Valley and Austin, Texas is not the universities that turn out educated people, although that helps, Its not the co-location of research and development branches of big businesses although that helps too. The “secret sauce” is the people willing to risk their cash on new ideas!

The last takeaway is that you should never saddle yourself with so much debt that you lose control; but never borrow just enough to give yourself a case of the shorts. You've got to have enough cash to finish!

Friday, May 2, 2014

I have been watching the new TV show Vikings and in the next
to last episode, the king seems to have suborned all of Ragnar’s followers. I
was ready to give it up as a dog-eat-dog the winner is the one who stabbed the
most friends and followers in the back clone.

Imagine my surprise when SPOILER ALERT they all remained
loyal to Ragnar!

Why did the writers end this season in that way? I’m not
sure why they chose to tell the story in this way but they had really set this
up with his character from the very first episode. Ragnar had been loyal and
honest with all his associates.

Even his first wife who left him because he took a second
wife – something that his culture permitted – came to his aid. She refused to “share
him” but still respected his honor and integrity and saw him as the logical
choice to lead the nation when the king tried to assonate Ragnar.

The moral of the story turned out to be that if you are
loyal to your people and treat them with honor and honesty they will support
and protect you when you need it; a lesson that most managers could stand to
relearn.

Throwing your people under the bus to save yourself
guarantees that when the time comes they will not put themselves in the slightest
risk to save you!There is no great concept here and nothing that takes a long time to explain. The simplest thing to do. Treat people the way you want to be treated and they will return that treatment. Not always or in every case but often enough that it really, really pays off in the long run.

Monday, April 28, 2014

Reading Freakonomics on the web and this morning their article is about Aereo, the antenna rental business in New York. The following is a quote from their article:

Aereo’s business model is clever and, potentially, very disruptive. As they have done since the dawn of television, the major networks – ABC, NBC, CBS, and FOX – broadcast their signals over the air. You can receive these signals with a digital antenna – the modern equivalent of rabbit ears – and millions of Americans who don’t subscribe to cable or satellite still do.

I find this facinating as a child of the 1950 when TV was just moving from a rich man’s toy to everybody’s got one with antennas on every rooftop.

The broadcasters gave away the program to anyone and everyone to get the advertising base and into as many living rooms as possible. The original model was similar to print with the largest advertising fees going to the station with the largest reader / viewer base. Part of the reason that some TV show stars make huge salaries after the show catches on.

There was a theory from radio that was applied to TV broadcasts - “the right of capture”. The concept being that since there was a limited number of frequencies that the broadcasters could use and they were licensed by the government to use it, anyone with the appropriate receiver could “capture” the signal and listen or watch it.

Obviously no one knows how the Supreme Court will decide but the precedent of deciding that I cannot pay someone for the use of an antenna in a better location than my own rooftop (or a set of rabbit ears) will be the first wedge in removing all free broadcasts. Once the concept of my not being allowed to put up (or pay some one to put up) a remote antenna is accepted how long until putting one up on my house (or even using set-top rabbit ears) becomes illegal too.

The cable companies rebroadcast programs and pay a fee to the program’s owners but they get their signal directly from the broadcaster and we expect a much higher level of signal quality using that system. With Aereo’s antenna farm, I might expect a lower level of signal and so only be willing to pay less. And that seems to be Aereo’s business model.

ABC seems to be changing their business model from broadcasting the signal over the airways for free to the viewer and charging the advertisers for access to those viewers to one of charging the viewer for part of their costs and only charging the advertisers for part.

If the supreme court does decide in favor of ABC it should increase ABC’s income by the amount antenna farms have to pay for the right to retransmit the programing.

OK, now we should see the cost of the broadcast license increase since the public owns the airways and with those extra fees it just made that license a more valuable commodity.

Thursday, April 10, 2014

High-frequency trading is when
financial institutions, traders or brokers use sophisticated computer
algorithms and high speed data networks to make lightning fast trades. The
objective is to make a very small (sometimes only a penny or two) on a large
number of trades because the algorithm spots trends before humans and can buy
or sell faster.

Anyone reading business
magazines is familiar with the concept and accepts it as part of the stock
trading process. My question is what value does the stock market add to our
society?

Stocks are a form of ownership
in a company and business sell their stock to raise capital for buying real
estate to house their operations, to buy equipment to improve productivity or
maybe just so the owners can recover some of the money they already spent to
create the company.

That’s the theory but very
little of the stocks being traded today were sold by the company itself, most
being re-sold by people who originally bought it when the company first sold
it. Perhaps it has been bought and sold many times since the company it
represents first sold it to raise capital.

So, how does stock in the secondary market benefit that
original company or society in general? If I invest in a company and get stock
shares instead of just an IOU then I can sell those shares to someone else when
I need or want my cash back. The stock market acts just like a supermarket by
putting all the different stocks in one place where buyers can find the ones
they want.

That’s the value to the investor but what is the value to
society? If I invest in a company and have to wait for them to buy back those
stocks or for them to pay dividends I might have my money tied up for a lot
longer than I might want and I might not invest at all.

The ability to cash out by selling on the secondary market
makes the investment more attractive and helps companies that need the cash to
create and make product that people want easier.

OK, I get that. But what value do these “high frequency
traders” add?

The honest answer is very little since they are buying a
stock for $10.03 and selling a minute later at $10.10 they have not added any
value to the process. Yes the seller got a buyer at 10:01 AM. Without that HFT
in the process they would have still sold the stock at 10:02 but for $0.07
cents per share more.

Most sellers aren’t selling huge numbers of shares so the
seven cents is unimportant but the HFT is dealing thousands of shares and if
they only touch 1,000 shares that means they pick up a $70 profit. Now seventy
bucks is nothing but suppose they do that with 100,000 in 1 minute ($7,000) and
repeat that every minute with yet another stock on and on?

Remember that this is a computer program that never get’s
tired or takes a break. They really aren’t adding any value to the process but
they are adding cost to the market and driving up the price by that fraction.

When the government imposes a tax we expect that we are
paying for some service that adds value to our lives – sometimes it actually
works out that way. Same for fees that airlines or banks charge – sometimes we
actually get some additional service for that money. The fraction that HFT adds
to the cost of stocks acts as a tax or fee, increasing costs but returns no
addition value to the seller, to the buyer or to society at large.